1. Brown County Financial Decision and Support Model
Prepared for
Brown County Redevelopment Commission
May 18, 2018
Prepared by
Jomar Floyd, Jake McVeigh, & Kristen Hurns

2. Background INDIANA SCHOOL OF PUBLIC AND ENVIROMENTAL AFFAIRS GRADUATES
Course project for Seminar in Revenue Theory & Administration Spring 2018
Previous students produced the Brown County Redevelopment Analysis during Fall 2017.
Further analysis to consider after the first report
Revenue forecast model of revenue from property and local income tax to support County Financial Decision and Support Model
County level data to support its decision-making process and to improve tax policy

3. The purpose of this paper is to provide the first step in building Brown County’s Financial Decision and Support Model.
Three main questions
What is happening? Trends in revenue, expenditures, and economic factors
What will happen? Forecasting future revenue based on current trends
How will financial decisions affect the future? Estimating the effects tax policy and the economy will have on future revenue and tax base
Trends and forecasts of Brown County’s property tax and local income tax (LIT)

4. Financial Decision & Support Model$
How will tax increases affect revenue and the tax base?
Tax increase
What is % increase & decrease per year?
Tax base
Revenue
Expenditures
When to increase taxes?
Year

5. Trends in revenue and economic factors define the county’s financial situation
Considerations
Time-series data allows for comparison across years and variables
Multiple sources of data at the local, state and federal level
Timeliness: collection and cleaning of data takes time and expertise
Relationship between economic factors, revenue
Community Vitality Indicators
Assessed Value
Per Capita Income
Population Growth
Revenue
Certified Distributions (Local Income Tax)
Certified Levy (Property Tax)

6. Assessed value represents market value of property and the base for property taxes
Brown County’s Net Assessed Value (NAV)
$125 million (nominal $)
$1 billion (nominal $)
NAV = 100% of market value of property
Time series data for NAV was constructed from Indiana’s Tax Handbook, adjusted for inflation
Average Growth
Nominal $ = 0.58%
2016 $ = -1.21%
Source: Department of Local Government and Indiana Tax Handbook

7. Per capita income as an indicator of economic health
2000 – $41,909
2016 – $42,554
Inference from trend
Causes for growth
Economic events
Brown County Personal Income1
Year
Average Annual Growth Rate %
2007 – 2016
0.904
2010 – 2016
1.640
Source: STATS Indiana
[1] Personal income was first converted into 2016 dollars before average growth rates were calculated.

8. Brown County declining population due to an aging population and net migration
Population estimates for based on Census and American Community Survey
Fewer residents imply decreasing number of employees and property owners in the county
Demographic information to accompany population statistics
Source: U.S Census Bureau

9. Certified Distributions – Local Income Tax Revenue
Local Income Tax Trend
Distributions to county for all taxing units
Time-series of shares for each taxing unit requires intensive data gathering
Increase growth reflects increases in the tax rate
2010 – 2018 average rate 0.78%
Brown County Tax Rate
Year
Tax Rate
1.250%
2008 – 2014
2.200%
2.396%
present
2.523%
Source: Indiana Tax Handbook

10. Certified Levy – Property Tax Revenue
Property Tax Trends
Certified Levy = Property Tax Collected
Expenditures and levy closely linked
Trends in expenditures and levy at fund level
Average % Change
Certified Levy
2.09%
Certified Budget
4.36%
Net Assessed Value
-1.21%
Source: Department of Local Government Finance

11. Using data trends to forecast future values
Considerations
Data availability
Scope of forecast
Technical expertise
Accuracy
Purpose
Budget process
Justification for financial decisions
Revenue and expenditures
Forecasting Techniques
Judgement/Expert
Extrapolative/Trend
Causal: Deterministic/Econometric

12. Forecasting Techniques – Judgement/Expert
Method – requires deep knowledge of and experience with the community, revenue source, and the budgeting process
Advantages – Simple, no data requirements, least expensive of methods
Limitations – inaccuracy, short-term projections, subjective, no explanatory value

13. Forecasting Techniques – Extrapolative/Trend
Method – incremental, quantitative approach; uses historical data to predict future values
Advantages – little cost, limited data requirements, straightforward
Limitations – account for influencing factors, volatile revenue sources, “turning points”

14. Forecasting Techniques – Deterministic/Econometric
Method – identifying causal relationships using economic principles and statistical techniques
Advantages – “what if questions”, economic impact, mathematical relationships between revenue and economic factors, test assumptions through statistical models
Limitations – significant information costs, technical expertise required to develop forecasting equations

15. Structural characteristics of local income tax and property tax
Complex structure of four taxes with different rates and purposes
Simplified in 2016 as Local Income Tax
2-year delay between when income is earned and when tax is received
Tax Base
Indiana adjusted gross income
Residents of Brown County
Tax Rate
Property tax relief
Expenditure
Property Tax
2003 change in assessment process to reflect 100% of market value
Circuit breaker caps on property tax liability
Tax Base
Net assessed value of real and personal property
Tax Rate
Rate is a function of the budget process
Determined at the fund level

16. Certified Distribution
A trend forecasting technique provides an easy to adapt method for predicting changes in revenue and tax base.
Forecasted Values
Predicted values based on 3 year moving averages
Prediction for 2020 and 2021 based on predicted values for and 2020
Provides baseline for comparison to actual values and newer models
Measures of Error
Statistical measures of average difference between observed and predicted values
Comparison between assumptions made to calculate moving averages
Year
Assessed Value
Certified Distribution
2019
1,209,201,032
8,055,896
2020
1,203,672,356
8,046,674
2021
1,205,549,418
8,049,713
Measure
Certified Distribution
Assessed Value
MAD
206,601
33,568,482
MAPE
3.97%
2.39%
MSE
122E9
2.585E15

17. Database – Entity Relationship Diagram
Brown County currently faces many data challenges to forecast trends at the county- level.
Having an internal county level database offers many advantages for Brown County to improve speed, time and storage capability needed to manage financial data
We designed an entity relationship diagram model (ERD) to track revenue from property and income tax of residents and business in Brown County.

18. Recommendations
We recommend Brown County identifies the relationships between revenue, expenditures, and economic factors to improve data management.
We recommend the use of trend forecasting to predict future trends in revenue sources. Furthermore, analysis of revenue and expenditure trends should be at the fund level.
We recommend BCRDC to further inquire about how to manage data at the county-level using a database management application system to conduct inquiries and generate reports of revenue and expenditure data to support the County Financial and Decision Support Model.

19. Questions?